Executive Briefing

1
Texas State Energy Conservation Office (SECO)

• Executive Briefing
• for
• Executive Directors
• and
• Chief Financial Officers
• August 9, 2006

2
Texas Energy Services Coalition

• Overview of the Texas ESC Chapter
• Theresa Sifuentes Public Sector Co-chair
• Program Manager-LoanSTAR, SECO
• Kevin Vaughn Private Sector Co-chair
• Market Manager- Government Energy Solutions, TAC
  Americas

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Texas Energy Services Coalition

• Introduction to
• Performance Contracting
• Presenters
• Klip Weaver Market Manager, Government Energy
  Solutions, TAC Energy Solutions Inc..
• Carl Hurst, P.E. - State Government Sales
  Director, Western U.S., Johnson Controls, Inc.

4
Topics of Discussion

• Performance Contracting Overview
• Energy Conservation Legislation
• State of Texas Performance Contracting Guidelines
• Available/Common Financing for Projects
• Identifying and Mitigating the risks

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Before we begin

• High interest from the legislature
• Plenty of available funding
• Good for the states budget
• Bond Review Board approves these projects
• You arent the first
• Long history of successful projects

6
Prior Projects
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Prior Projects
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Prior Projects
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Performance Contracting Overview

• Carl Hurst, P.E.
• State Government Sales Director, Western U.S.,
  Johnson Controls, Inc.

10
What problems do you face at your facility?

• Limited budgets
• Maintenance problems
• or comfort complaints
• Limited expertise on technologies
• Too many demands on staff time
• to launch new projects
• Yetyou want to replace equipment
• and modernize your facilities

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If you face these problemsyou are not alone

• An Innovative Solution
• Energy
• Performance
• Contracting
• a smart way to get better buildings

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Energy Performance Contracting
Projects pay for themselves!
Savings stack up over time
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Heres How It Works...

• Money otherwise owed to the gas or electric
  utility pays for equipment!

Annual Budget
Annual Budget
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How is the project funded?Multi-Year
Lease-Purchase Agreement
Annual Budget AFTER Improvements

• Financed through TPFA master lease program
• Annual cost savings exceed annual payments
• 15-year financing term (per legislation)
• Does not impact debt ceiling
• Endorsed by State Legislature Governor
• Results guaranteed by the ESCO

The money saved from the operating budget is
used to make the payments!
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What about risk?Performance
Contracting projects are significantly lower
risk than traditional projects

• Design build process gives agency control of
  outcome
• Single point of responsibility eliminates finger
  pointing
• Guaranteed Results
• The equipment will perform as intended
• The project will perform financially as intended
• The ESCO is obligated contractually by a
  guarantee

Annual Budget AFTER Improvements
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Some Example Measures

• Lighting Improvements
• Projects
• Replace fluorescent tubes ballast
• Replace fixtures
• Benefits
• Easily pays for itself within its lifetime
• Cuts energy cost of lighting system by 25 or
  more
• Improved lighting quality
• Better indoor environment
• Cooler rooms on hot days (less heat from lighting
  system)
• Leveraging opportunity buy other equipment with
  savings from lighting

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Some Example Measures (cont.)

• Heating System Improvements
• Projects
• Replace old boilers
• Upgrade with better controls
• Benefits
• Improved comfort
• Better internal environment
• Solve maintenance problems
• Eliminate the need to buy boiler
  replacement from capital funds

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Some Example Measures (cont.)

• Water Utilization Improvements
• Projects
• Replace faucets and fixtures
• Improve irrigation systems and controls
• Benefits
• Pays for itself through water savings
• Improved application
• Solve maintenance problems
• Modernize optimize systems

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Other applications/opportunities

• Biomass
• Renewables
• Solar
• Geo Exchange
• Wind
• LEED certification
• Utility rebates
• Grant money

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A Key Differentiator of the process..

• Your Partnership with an
• Energy Service
• Company (ESCO)

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Your ESCO will put the pieces together

• Identify and evaluate opportunities (energy
  audit)
• Design systems (engineering), specify purchase
• Manage construction
• Arrange for financing
• Provide long-term energy management services
• Guarantee performance!

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5 Steps to Success

• Decide if performance contracting is right for
  you
• (Assess your needs potential benefits)
• Select an Energy Service Company, ESCO (Issue an
  RFQ)
• ESCO identifies energy-saving opportunities
• (Execute an audit contract)
• ESCO implements projects
  (Develop and execute an
  Energy Performance Contract)
• Verify savings and enjoy the benefits
  (Monitor
  long-term performance)

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Performance Contracting is a Better
MethodThe ESCO is fully accountable for
project performance, costs and savings!
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Many Advantages of Performance Contracting

• Better Buildings! Improved Comfort! Maintenance
  Problems Solved!
• Pay for projects with no up-front funds (your
  utility budget pays for the projects)
• One-stop shopping (single contract for multiple
  projects)

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Many Advantages of Performance Contracting (cont.)

• ESCO Expertise from onset to completion
• Energy efficiency
• Operation and maintenance of buildings
• Project cost assessment
• Project financing
• Construction management
• Comprehensive, whole-building approach
• Training for your staff
• Ongoing project monitoring and trouble-shooting
  to ensure sustained savings

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Performance Contracting Overview

• Klip Weaver
• Market Manager, Government Energy Solutions, TAC
  Energy Solutions Inc.

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Existing Statute

• State Agencies 2166.406 Texas Government Code
• City/County 302 Local Government Code
• State Higher Ed. 51.927 Texas Education Code
• School Districts 44.901 Texas Education Code

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History of Enabling Legislation

• Senate Bill 1811 1997
• Allows Higher Education to utilize TPFA
• House Bill 3530 - 1997
• Allows State Agencies to utilize performance
  contracting
• House Bill 2492 - 1999
• Extends term to 15 years
• House Bill 3286 2001
• Allows water conservation

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History of Enabling Legislation

• House Bill 2277 - 2001
• Clarifies RFQ procurement options
• Clarifies bonding issues
• Allows TPFA financing for State Agencies
• Third Party Engineer review
• House Bill 2278 2001
• Establishes SECO in Comptrollers Office
• Requires State Agencies to implement energy
  conservation measures meeting the requirements of
  Section 2166.406 Texas Government Code

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2166.406 Texas Gov. Code

• 2166.406 Texas Gov Code
• (f)- term of ESPC contract limited to 15 years
• (g)- ESPC projects may be financed with TPFAs
  Master Lease Purchase Program
• (h)- contractor must guarantee savings
• (I)- agency shall procure ESPC using professional
  services by 2254.004 (RFQ) and independent 3rd
  party engineer shall review cost savings
• (j)- legislature shall base agencys
  appropriation for energy and water on the sum of
• the agencys estimated annual energy and water
  costs and
• If ESPC is in effect, the annual energy and water
  savings resulting from the ESPC

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2113.301 Texas Gov. Code

• 2113.301 Texas Gov Code
• (b)- Before a state agency may use appropriated
  money to make a capital expenditure for a state
  facility purpose, the state agency must determine
  whether the expenditure could be financed with
  money generated by a utility cost savings
  contract
• (c) If it is practicable to do so, a state
  agency that is using appropriated money must
  finance a capital expenditure for a state
  facility purpose with money generated by a
  utility cost savings contract.
• (d) If it is not practicable for a state agency
  that is using appropriated money to finance a
  capital expenditure for a state facility purpose
  with money generated by a utility cost savings
  contract, the state agency must provide
  justification to the comptroller for the capital
  expenditure.

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Other Initiatives

• RP 49
• SB 5 Efficiency Mandates
• Utility Standard Offer Programs
• Other Utility Incentives

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State of Texas Performance Contracting
Guidelines

• Comptrollers Energy Efficiency Task Force
• Collaboration of State Agencies, Higher Ed.,
  ESCOs, SECO, AE firms, THECB
• Developed the State Review and Approval Process
• Established
• Sample Contract Documents,
• Request for Qualifications,
• Audit procedures, Report Guidelines,
• MV requirements,
• Third Party Engineering Review requirements

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Measurement and Verification of Project
Performance

• Established Protocols for Measurement and
  Verification (MV)
• IPMVP - International Protocol for Measurement
  and Verification Procedures
• MV Plan is required to be reviewed by third
  party engineer
• It is possible to measure actual performance !

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Financing Options

• Texas Public Finance Authority
• Master Equipment Lease Purchase Program
• Tax-Free Municipal Lease Purchase
• SECO LoanSTAR funds
• Proceeds of bonds
• Contract with the provider of the Energy
  Conservation Measures
• Utility Rebates
• Grants

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Project Financing
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Project Financing
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Project Financing
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Identifying Risk

• Sources of Risk

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Identifying Risk

• Mitigation Strategies

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How to get Started

• Contact SECO
• Theresa Sifuentes,
• State Energy Conservation Office
• Program Manager
• [phone]

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Visit Our Web Sites

• Web address here

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• Insert Tracys slides

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• Insert HHSC Case Study

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• Insert Freds slides

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Questions